With the market rallying sharply over the last 10 trading days, the sentiment indicators have turned sharply.
The AAII Sentiment Survey saw the bullish percentage jump from 27.9 percent to 40.1 percent, while the bearish percentage dropped from 36.4 percent to 32.5 percent.
This caused the ratio of bulls to bears to jump from 0.77 to 1.23. The four-week moving average fell to 1.15, as the highest reading from this year fell off the average.
Meanwhile the CBOE Volatility Index (VIX) has dropped sharply in the last 11 days. After hitting a high of 21.48 on Feb. 3, the indicator dropped to close at 13.57 on Friday — a drop of 36.8 percent in only 11 days.
These reversals in the sentiment indicators are emblematic of investors rushing to buy the dips, which has been very profitable during the last couple of years.
My concern is that one of these dips is going to be the start of a bear market, and if investors don't have an exit plan, they will see a great deal of their profits taken away in a short period of time.
I am sure there were investors in the second half of 2000 and again in late 2007 who were buying stocks as they pulled back. If they didn't have an exit plan and held throughout, they probably saw everything they gained in the bull market disappear.
No matter whether you are buying for the long haul or if you are buying the dips during this bullish run, you should always have an exit plan when you buy any investment.
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